The market for used smartphones is much larger than most investors realize, and one analyst says that this gives Apple (NASDAQ:AAPL) a unique opportunity to vastly expand its market share in developing countries.

Morgan Stanley analyst Katy Huberty says that because used iPhones help Apple expand its total addressable market by 65% through trade-in programs, its share in developing markets can be commensurate with its global market share by 2023.

Smiling girl with iPhone

Image source: Apple.

Earlier this year, the market researchers at IDC forecast smartphone volumes would fall 2.2% globally in 2020, and that was before the coronavirus pandemic. But they also said sales of used smartphones would grow 13.6% annually through 2023, hitting 332.9 million units, mostly because new smartphone prices often exceed $1,000, a trend Apple started in 2017 with the iPhone X.

Huberty said that investors misjudge the size of the used smartphone market because the capacity of iPhone buyers to trade in a used device is much larger before hitting a saturation point, allowing Apple to increase share in developing markets.

Data from Canalys says the smartphone market plunged 14% in the second quarter this year due to the pandemic, but Apple was the only manufacturer to experience growth, shipping 45.1 million iPhones worldwide, a 25% increase that expanded its global market share to 15.8%.

That could mean massive uptake of iPhones in emerging markets, as the tech stock has seen its share of all smartphone sales stagnate in some countries, like India, at just 1%. That could be partly the reason behind the release of the low-cost iPhone SE this spring with a price tag of $399.

Despite the expected surge in market share, Huberty maintained her overweight rating on Apple stock with a $431 price tag, or about 7% below where it currently trades.